40-50% Energy Cost ‘Slash’ Via Production Privatisation

The Bahamas Renewable Energy Association’s president has hailed proposals to privatise electricity generation as having the potential to slash energy costs by 40-50 per cent and make this nation a regional leader.

Guilden Gilbert told Tribune Business that permitting independent power producers (IPPs), especially renewable providers, to generate the bulk of the Bahamas’ electricity needs would both reduce energy costs and “not cost the country a penny”.

Mr Gilbert, who is vice-president of Alternative Power Sources (Bahamas), said both the Association and his company welcomed the potential privatisation of Bahamian electricity production as “a move in the right direction”.

The policy shift was indicated last week by Renward Wells, co-chair of the Government’s Energy Task Force, who confirmed to Tribune Business that the group was assessing 100 per cent privatisation of energy production.

“We’re looking at privatising the actual generation of electricity, so that we can allow grid ties, and persons could be able to tie into the electricity grid using solar,” the Ministry of Works parliamentary secretary told this newspaper, adding that the Government would seek private sector support for such an initiative.

While the Christie Cabinet has yet to approve such a move, Mr Gilbert told Tribune Business that adopting it would drive the Bahamas “leaps and bounds” ahead of Caribbean competitors on renewable energy.

He disclosed to this newspaper that despite the Government’s decision to withdraw its Family Island renewable energy tender two days before the bid deadline, Alternative Power Sources (Bahamas) had gone ahead and submitted proposals for all Family Islands.

Disclosing that these reduced energy costs to around 20 cents per klilowatt (KWh), a 40-50 per cent drop from current prices, Mr Gilbert said he had been told the Government would seek to privatise the Bahamas Electricity Corporation (BEC) before year-end.

While that could not be confirmed, the APS executive backed the philosophy that the Government ‘should get out of business’, instead acting as the regulator and private sector enabler – not the asset owner.

“I think it’s a good move, a move in the right direction, and one that can definitely help to bring down the cost of power in the country,” Mr Gilbert told Tribune Business, of Mr Wells’ and the Task Force’s likely recommendations. “Speaking as president of the Renewable Energy Association, I can say on its behalf that we definitely welcome that move.

“Using renewable energy, the pricing shouldn’t change. I would think the cost of energy could come down anywhere from 40-50 per cent, depending how large those solar photovoltaic (PV) plants become.”

Explaining how the privatisation of energy production would likely work, Mr Gilbert told Tribune Business it would involve privately-owned companies, using a variety of technologies, negotiating agreements to sell electricity to BEC at specific prices and quantities.

Using the recent tender as an example, Mr Gilbert said: “The recent Request for Proposal put out by the Task Force that was rescinded two days before it was due, we submitted for all 15 Family Islands in the RFP.

“We’d already gone through the process of putting all the documents together. After doing all that work, we thought it best to go through with it and submit our work.

“Our partners are able to finance it at 100 per cent with no cost to the country. To date, they’ve financed 200 Mega Watts (MW) of solar PV power. They provide financing globally, and this year have financed over $35 million in renewable energy projects. They have $250 million every year they can spend on financing renewable energy projects.”

In other words, independent power producers (IPPs) would assume all the operational and investment risks associated with energy generation and supplying BEC. They would construct their power ‘plants’ under a build/own/operate agreement, which at the end of its term would likely result in the facility being turned over to BEC.

Combining generation privatisation with the Task Force’s aim of ensuring 40 per cent of the Bahamas’ energy needs come from renewables by 2030, and the door could be unlocked to reducing the burden that consistently high energy costs have inflicted upon businesses and consumers.

Not to mention improving the Bahamas’ energy security, and reducing the drain on foreign exchange reserves that up to $1 billion worth of fuel imports imposes annually.

“These projects come at no cost to the Government; they are financed 100 per cent, and have a 20-year warranty,” Mr Gilbert reiterated. “At the end of 20 years, they are given to the Government or the utility.

“The only cost to BEC will be the rate they pay for the power, which should be around 20 cents per KWh.” That rate is 50 per cent of what BEC is charging consumers today.

Bound up with power production privatisation will be the issue of what to do with BEC. A key decision will be whether to split off its generation assets (Clifton and Blue Hills, plus Family Island power plants) from its distribution/transmission lines business, and sell the former to a private company.

“I was actually told to expect BEC to be privatised by the end of the year,” Mr Gilbert told Tribune Business. “I was sceptical, but clearly the Government is thinking about doing it.

“I don’t think that it’s a bad thing; I believe the Government shouldn’t own any assets. The Government should set policy for the private sector to grow the economy, and if that happens it will be a good thing.”

Privatising BEC by year-end is an overly-ambitious goal and unlikely to happen, as much work is required to ready the Corporation beforehand. There will also be concern that resistance from ‘vested interests’, such as BEC’s powerful unions worried about job losses, could delay or scupper such plans.

Despite inheriting detailed reports on energy reform from the German consultants, Fichtner, upon taking office, the Christie administration effectively chose to ‘reinvent the wheel’ via a study by Genting Energy.

This has provided the foundation for the Task Force’s work, and is also understood to have recommended privatising energy production.

Still, Tribune Business understands that the current Government has elected not to reform the National Energy Policy Committee, which wrote two reports in preparing for such a policy.

This has left the private sector, to-date, on the outside, and with between 60-100 renewable energy proposals piling up on its desk, the Government needs to get a move on through clearly setting out the ‘rules of the game’ – enabling legislation, policies and investment incentives.

“It’s not only an important move for us as renewable energy companies, but for the country as it slashes the cost of energy long-term. It’s a way for the country to cut back on the use of fossil fuels, as their price does not show any sign of coming down soon.”

Suggesting that electricity production privatisation could establish the Bahamas as a Caribbean leader, Mr Gilbert told Tribune Business: “The renewable energy industry should be an industry in and of itself, so you’re talking about creating long-term employment opportunities.

“Right now, Jamaica is the leading country in the region on renewables, but such a move by the Bahamas government would position it leaps and bounds beyond Jamaica.”

While Jamaica allowed IPPs and net billing, Mr Gilbert said its BEC equivalent, the Jamaica Public Service Company (JPS), was still the ultimate source of power generation and distribution. And in Bermuda there were limits on the amount of power IPPs could generate.

“The Bahamas would definitely be leading the region from that perspective, and would set, I believe a very interesting trend because with that, other countries will begin to follow,” Mr Gilbert added.